Census and Statistics Department announces results of study on household income distribution in Hong Kong

Published date: 9 June 2017

The Census and Statistics Department (C&SD) released the results of the study on household income distribution in Hong Kong in 2016 today (June 9) in the "Thematic Report on Household Income Distribution in Hong Kong". The study was undertaken by making use of data from the 2016 Population By-census and relevant administrative information. The report also presented the results of two similar studies conducted in the past using data from the 2011 Population Census and the 2006 Population By-census for comparison.

Speaking at a press conference today, the Commissioner for Census and Statistics, Mr Leslie Tang, said, "Study on income distribution is an extensive and complex subject, as affected by social, demographic and economic changes. More specifically, the acceleration of population ageing and increase in households with one person or two persons had widened the household income disparity over the past five years. On the other hand, the economic and labour market conditions, as well as the government policies on taxation and cash or in-kind social benefits also affected household income distribution. The C&SD aims at providing comprehensive data and findings of the study to facilitate more in-depth analyses and discussions about the related topics in the community, so that the community can clearly understand various factors affecting the changes in income distribution."

Household income and employment income

Household income includes employment income, cash social benefits and other income (e.g. dividends and interest, rental income and regular contributions from non-household members).

Employment income constituted the major source of household income, with 85.8% of the domestic household income (excluding foreign domestic helpers (FDHs)) attributable to employment income in 2016, which was largely the same as that in 2011. The median monthly income from main employment of the working population (excluding FDHs) was $15,500 in 2016, up visibly by 29.2% when compared to $12,000 in 2011. Taking into account the price changes, the increase was 9.5% in real terms.

Analysed by decile group, the median employment income of all decile groups grew faster than inflation in 2016 as compared with 2011, indicating an improvement in employment income in real terms in all strata of society. In particular, the cumulative growth for the first decile group (i.e. the 10% of working population with the lowest employment income) was most notable, at 46.6%, while that for the second decile group was 29.6%. Both were higher than the 29.2% increase in the overall median. In contrast, the increases for the ninth and 10th decile groups were 23.3% and 23.6% respectively, slightly lower than the increase in the overall median. It was associated with the steady overall economic growth in Hong Kong and the tight labour market during the period, resulting in sturdy labour demand in lower-skilled jobs. This, together with the implementation of the Statutory Minimum Wage in May 2011 and subsequent up-ratings, resulted in significant improvements in both the employment and income situations of grass-roots workers.

The trend of median household income was similar to that of individual employment income. Between 2011 and 2016, the median monthly household income at current prices (excluding FDHs) increased by 23.3%, from $20,200 to $24,900, representing a real growth of 4.4% after taking into account the price changes.

Apart from being closely related to employment income distribution, household income distribution is also affected by the changes in household composition (including household size and the number of working members), cash social benefits and other income. Therefore, the trend of monthly household income analysed by decile group was slightly different from that of individual employment income.

First, affected by the accelerating population ageing, the number of retired elderly people was rising, leading to a marked increase in economically inactive households (Note 1). Between 2011 and 2016, the proportion of economically inactive households among all households increased from 17.9% to 19.0%, and the number of economically inactive households increased by 52 000. During the period, the number of economically inactive elderly households (i.e. with all household members, excluding FDHs, aged 65 and over) increased by 57 000, indicating that the increase in economically inactive households was entirely attributed to population ageing. As most economically inactive elderly households consisted of retired persons with no employment income, naturally their median household income (the figure was $5,800 with FDHs excluded) was lower than that of all households in Hong Kong ($24,900).

Furthermore, household income is closely related to household size. In general, households with one person or two persons have fewer working members and thus usually have lower household income. Therefore, the increasing prominence of households with one person or two persons would affect the overall household income distribution. Along with population ageing and the tendency of people to remain single, and coupled with the low fertility rate, the proportion of one-person and two-person households (excluding FDHs) increased from 17.9% and 26.0% respectively in 2011 to 19.5% and 27.4% respectively in 2016. The overall average household size decreased from 2.8 in 2011 to 2.7 in 2016.

On the other hand, the cash social benefits given out by the Government, including the Old Age Living Allowance introduced in 2013 to support elderly people who are in need of financial support, increased between 2011 and 2016. This had relieved the widening effect of accelerating population ageing on household income disparity.

Summing up the above, the median household income of all decile groups recorded double-digit cumulative increases over the past five years, ranging from 15.1% to 23.7%. This was different from the trend of individual employment income, whereby the lower decile groups showed notably higher growth.

Gini Coefficient (Note 2)

Among the various income disparity measures, the Gini Coefficient is more widely known and commonly used by other economies. The thematic report thus adopted Gini Coefficient (covering all domestic households and the Hong Kong resident population) to analyse the income disparity situations under different measurement concepts of income.

According to the results of the study on household income distribution in Hong Kong, the Gini Coefficient based on original monthly household income was 0.539 in 2016. After discounting the effect of population ageing which had led to an increase in economically inactive households and focusing only on economically active households (Note 3), the Gini Coefficient based on original monthly household income was 0.482. After discounting the effect of change in household size, the Gini Coefficient based on per capita monthly household income was 0.499. Taking the effects of taxation and transfer of in-kind social benefits (including education, housing and medical) into account, the Gini Coefficient based on post-tax post-social transfer monthly household income was 0.473. After netting out the changes in household size at the same time, the Gini Coefficient based on per capita post-tax post-social transfer income was 0.420.

In 2016, the Gini Coefficient based on original monthly household income was 0.539, up by 0.002 compared to 0.537 in 2011, indicating that the household income disparity widened during the period under the effects of population ageing and an increase in households with one person or two persons as indicated above. Although population ageing had accelerated in recent years, the increase in the Gini Coefficient based on original household income had slowed down (increased by 0.004 from 2006 to 2011 and by 0.002 from 2011 to 2016). This reflects that improvement in the employment and income situations of the grass-roots workers as well as the increasing government expenditure on cash social benefits in recent years had relieved the widening effect of accelerating population ageing on income disparity.

The increasing prominence of economically inactive households due to population ageing would naturally widen the overall household income disparity in Hong Kong. To discount such impact, one can focus on the income situation of the economically active households. The Gini Coefficient for economically active households (based on original monthly household income) was 0.482 in 2016, lower than the 0.489 in 2011.

Furthermore, the trend of household income disparity is also affected by the change in the household size distribution over the period. The Gini Coefficient compiled using per capita monthly household income could discount the effect of change in household size. The Gini Coefficient compiled on such a basis decreased from 0.507 in 2011 to 0.499 in 2016. Both figures were lower than the Gini Coefficients based on original household income, reflecting that the income disparity narrowed down markedly after discounting the change in household size.

Analyses of household income in cash alone may not be able to reflect fully the actual economic well-being of households. The government policies through taxation and in-kind social benefits (including education, housing and medical) also exert an overall redistributive impact on household income. Therefore, compilation of the Gini Coefficient based on monthly household income after tax and transfer of in-kind social benefits should provide a more meaningful measure of the actual income disparity in Hong Kong. The Gini Coefficient based on post-tax post-social transfer monthly household income was 0.473 in 2016, slightly lower than the 0.475 in 2011.

Comparing the Gini Coefficient based on post-tax post-social transfer household income with that based on original household income provides a measure of the magnitude and effectiveness of the Government's taxation and in-kind social benefits (including education, housing and medical) in mitigating income disparity in Hong Kong. The magnitude of reduction in the Gini Coefficient in 2016 was 0.066 (compared to the reduction of 0.062 in 2011). This reflects that taxation and in-kind social benefits could narrow the income disparity through redistributing income from the upper end of income distribution to the lower end.

After further discounting the effect of change in household size, the Gini Coefficient based on per capita post-tax post-social transfer household income decreased from 0.431 in 2011 to 0.420 in 2016.

In general, income disparity of metropolitan cities tends to be higher than that for individual countries due to difference in economic structure. Hong Kong is a metropolitan city. It is considered more appropriate to compare the income disparity situation in Hong Kong with other metropolitan cities rather than individual countries. When comparing the Gini Coefficients compiled based on similar methods among metropolitan cities, Hong Kong's Gini Coefficient based on original household income (0.539) is comparable to those of the major cities in the United States (in 2015), such as New York City (0.551), Washington, DC (0.535), Chicago (0.531), Los Angeles (0.531) and San Francisco (0.521). On the other hand, Singapore publishes the Gini Coefficient based on household income from work per household member, which should be compared to Hong Kong's Gini Coefficient based on per capita income for economically active households. On a post-tax post-social transfer basis, the Gini Coefficients of Singapore and Hong Kong were broadly on par, at 0.402 and 0.401 respectively.

Commentary

The Government spokesman said that with the steady economic growth and tight labour market over the past five years, together with the implementation of the Statutory Minimum Wage and subsequent upratings, employment income of all strata of society improved in real terms, and more notable improvement was observed for the grass-roots workers. Upon narrowed employment income disparity, the Gini Coefficient based on original monthly household income for economically active households decreased to 0.482 in 2016, down by 0.007 from 0.489 in 2011.

Nevertheless, the accelerating population ageing in recent years had led to increasing prominence of economically inactive households. At the same time, the number of households with one member or two members increased. Affected by these factors, the Gini Coefficient based on original monthly household income in 2016 was 0.539, up by 0.002 compared to 0.537 in 2011. The increase had slowed down when compared to the past as the narrowed income disparity for economically active households and increased government expenditure on cash social benefits during the period had offset part of the impact arising from changes in demographic and household composition.

The spokesman remarked that taxation and in-kind social benefits (including education, housing and medical) have played a significant role in household income redistribution. Hong Kong's Gini Coefficient based on post-tax post-social transfer household income was 0.473 in 2016, down by 0.002 compared to 0.475 in 2011. Together they had reduced the Gini Coefficient by 0.066 in 2016, with the reduction being larger than that in 2011 (-0.062) and 2006 (-0.058). The greater impact seen in 2016 reflects the increased strength and effectiveness of government policies in narrowing income disparity over time. Discounting the impact of both population ageing and the change in household size, the corresponding Gini Coefficient for economically active households (based on post-tax post-social transfer per capita household income) was lower, at 0.401 in 2016, significantly lower than the 0.413 in 2011.

The spokesman further commented that the Government has been highly concerned about the income disparity situation and its trend, particularly regarding the well-being of the low-income persons, elderly people in need and the disadvantaged. Poverty alleviation and support for the disadvantaged are at the top of the government agenda. The Government will continue its efforts to encourage and support people capable of working to achieve self-reliance through employment, and put in place a reasonable and sustainable social welfare system. In addition, the Government will continuously promote balanced economic development to create diversified job opportunities, and continue to invest in education, training and retraining to enhance the competitiveness of working persons and upward mobility. The Government will also allocate social and government resources through appropriate taxation and social welfare policies to let different strata of society share the fruits of economic development.

The spokesman added that the Gini Coefficient only reflected household income distribution. Although the effects of taxation and social transfer were taken into account, it did not consider the assets owned by households and hence could not fully reflect the actual economic well-being and living conditions of some "income-poor, asset-rich" households. The figures should be interpreted with caution when the Gini Coefficient is used as an indicator to reflect the gap between the rich and the poor.

Other Information

Tables 1 and 2 show the Gini Coefficients for 2006, 2011 and 2016. Table 3 compares the Gini Coefficients in Hong Kong with those of other selected metropolitan cities.